The measure is aimed at encouraging new banks in Israel and competition in the sector.
The Ministry of Finance and the economic regulators are considering an offer of insurance on deposits for small banks as a means of encouraging the entry of new players into the sector, sources inform "Globes." The proposal is part of an array of measures being promoted by the Ministry of Finance, the National Economic Council, the Antitrust Authority, and the Bank of Israel to encourage competition in the banking sector and the credit market for small businesses. In addition to depositors' insurance, government assistance to new banks having trouble meeting the minimum equity requirements for banks and other measures for removing barriers preventing the entry of additional banks and non-banking credit providers in the sectors are also being considered.
Many economists regard state depositors' insurance as one of the primary means of strengthening stability in the Israeli banking system. Support for the idea increased following the 2008 global credit crisis, which highlighted the "too big to fall" syndrome of Israeli banks. Almost nothing has actually been done to move the initiative forward, however, which is liable to have consequences for the credit rating of the state, the guarantor for the money. Depositors' insurance is expected to reinforce public confidence in a new banking entity attempting to get started, and will encourage the transfer of funds to it, without concern about the fate of the money if the new entity proves unstable.
Published by Globes [online], Israel business news - www.globes-online.com - on March 3, 2015
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